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WarStore Neal wrote:
July 15 2005 is the 2nd anniversary of the Games Workshop 'no internet' policy. It is a good time to look back - what has happened in the past 2 years?


Let me start off by saying I do think Games Workshop tried to put themselves squarely behind local stores with their 'no internet' policy in July 2003. Certainly for their own gain as well as they continued to set up company owned retail stores and improve their online presence. But at the time the focus was still on US Trade Sales (sales to stores) combined with lower production costs in their new US factory. The idea was that the money lost by eliminating internet 'free riders' would be offset by increases in their own retail and in sales to local stores. This new policy also set a precedent for protectionist 'local store friendly' internet policies in our industry and other companies soon followed suit with restrictive internet policies of their own.

With all this free protection from the big bad wolves of the internet it seems logical that the local gamestores should be experiencing a rennaissance of sales and profits. Unfortunately the opposite is the case and sales trends since July 2003 have been significantly down. Slowly at first, but now gaining momentum. 2005 industry sales have been poor. Many local stores are closing or treading water and confusion reigns. In many stores there are no longer enough players or interest to warrant the tournys, demo nights, and play space that used to be so plentiful. As sales slow store owners are having trouble maintaining stock levels, which in turn creates customer dissatisfaction and reduced interest. What happened?

In my opinion the failure of these restrictive policies stems from a fact that few in this industry care to contemplate, and if they contemplate it at all it is quickly dismissed as nonsense. But I will dare to speak the heretical - here in the 21st Century the internet is the driving force behind sales growth, not the local game store. With the completely mistaken sentiment of killing off internet 'free riders' with their new policy GWUS succeeded in switching off the engine of their own sales growth. And they simultaneously allowed a market share foothold to other, more 'internet friendly' start up companies. By following Games Workshop's lead other companies have adversely affected their sales as well.

I will state the completely heretical corollary as well. By damaging their online community in the name of holding the line on prices and protecting local stores these companies have actually hastened the destruction of many local stores. Simple market economics - when prices go up sales go down. Some customers dont join the game, some dont make second armies, some play something else. Soon 'critical mass' is reached and face to face gaming is no longer viable and customers turn to other hobbies and interests. By disallowing below msrp pricing these manufacturers have completely shaken the markets they built on that pricing. Markets that fed local game stores by building excitement, as well as primary and secondary sales. I am not sure these markets can be rebuilt simply because a company says their product is worth $XX.XX. The market is speaking.

It is my opinion that in light of these results the Games Workshop US strategy has now changed, and the proof of it is in their semi-annual reports. GW feels no one can sell their products like they can and are aggressively opening company owned stores across the US. In this scenario it doesnt matter what the retail price of the product is, the customer going in to their store has no other lines to compare with. They just recruit them, squeeze them and move on to the next.

Of course changing focus from Trade Sales to retail will drastically affect overall sales numbers BUT, if they keep raising retail prices and they sell the majority of the product themselves the all important bottom line profit will still look fine. This is the effect I have seen in the reports - declining sales, and yet profits remain the same.

The real trick in the meantime is to make sure the product never goes below 'critical mass', the point in which the game doesnt have enough players/buyers to retain sales volume. The changeover from wholesale focus to retail focus has to be swift enough that they keep enough people buying until their sales become entirely self-sufficent. Upon self-sufficiency Trade Sales becomes irrelevant. It can be continued as is, or store minimums raised, discount percentages lowered, self distribution terminated -- whatever makes most sense to the bottom line.

I think it is obvious the restrictive internet policies are an abject failure. By shifting focus GW may remain viable but in my opinion it will not work. I also know GW leaks like a sieve and when I saw the dramatic drop in stock price in April it makes me think someone saw the preliminary year end reports (finished in May/June, reported in July/August). I remain interested in the future.

In the end my conclusions remain the same as I had when I first heard of the internet policy in April 2003. I see the problem, I dont know all of the solution, but I do know that betting against the free market is for suckers. There has to be a better way.

I have some ideas, maybe one day a corporate suit will want to know what I think.

Till then I remain your opinionated obedient servant, whose business continues to grow.
Neal